Open Banking: More than PSD2
Open Banking launched to little fanfare in January this year and it hasn’t made much of an impact in consumer lives.
Why so little impact? So far PSD2 is only seen as a compliance project, but the APIs that sit at the heart of open banking can and should offer so much more.
APIs are everywhere, they have been for ages. Netflix, that’s using payment platform Stripe’s APIs, using Google Maps to get a taxi estimate from three different taxi firms, Deliveroo finding your current location with the press of a button. All possible thanks to APIs.
APIs allow companies to talk to each other and work together easily, but that’s an external view. They do so much more.
In an API-free world (which is the case more often than you’d think) developers who want to create innovative and experimental services end up playing a dangerous game. They work without a governance model. Without that they run the risk of putting sensitive data in jeopardy and losing money. APIs require a consistent governance model. But once you have that there’s no need to clutter developers with further internal processes for minor and adhoc changes.
APIs are great for agile innovation and experimentation. They break down into three distinct types.
Access to PSD2 Open Banking APIs is only available to AISPs and PISPs. It also costs £50K. Not exactly affordable for a startup that’s running on a shoestring. And at the moment PSD2 APIs are largely unimpressive. They’re a compliance exercise by banks.
PSD2 is about compliance, but AISPs and PISPs using that log of APIs are only able to scratch the surface. Banks making compliance-focused projects miss out. Creating APIs that go beyond the minimum compliance levels gives banks a toolkit that can market at speed.
For example, combining data through APIs could vastly improve the customer experience for processes such as account opening, AML checks and product application processes, where personal information can be pre-populated and information verified from official sources.
Instead of delivering near-useless products en masse.
When it comes to APIs, developers are your customers and the ones who need a minimum loveable product. Deliver a solution to their problems. If you do, they’ll be the ones who recommend your toolkit for purchase. PSD2 APIs are an opportunity for banks to showcase their API offering.
But as I said, it’s not affordable for every startup. Even those doing interesting work. So, how can banks use their position to get startups interested in their API toolkit?
APIs are the way forwards to creating real partnerships with fintechs. Creating a market-ready toolkit. Partnership APIs are conversational and ready to be implemented quickly. It reduces friction at every stage. Even if they’ve not been created prior to the partnership they can be designed together. Both parties working to develop a unique API goes beyond PSD2.
These aren’t APIs available to everyone like the open model but nor are they inward focused. It’s working to deliver solutions. Solving a problem together, working towards a common goal with a fintech means an industry-wide move towards real partnerships. Not pointlessly mimicking technology and ideas.
You can change your company just by creating internal APIs. That alone reduces friction.
APIs provide risk-reduced innovation by allowing developers to experiment using internal monitoring. They don’t need to be open. Or in partnerships. APIs should be used for internal innovation first, it’s what startups do. Instead of creating a jigsaw puzzle where products and processes can only work in one way, focus on creating building blocks where developers can build modular processes for the end user that only ever improve.
Monzo’s not a bank with an API, Monzo is an API
Simon Vans-Colina, Engineer at Monzo
Within a company an APIs’ purpose is to allow innovation and experimentation by developers without the need for a massive resource investment associated with most projects. APIs let developers create micro services and solutions tailored for target audience needs. Without needing to invest in project management fees or deal with internal bureaucracy.
Finance is playing catch-up with other industries, in API usage, as per usual. But as non-financial players start to encroach on financial services, driven by APIs, the industry will catch up. Quality APIs are leaving the bottom of the J-curve, API usage may increase slowly at first but with more quality APIs being created every day the sector is set to take off.
Next time I’ll take a look at how APIs are creating entire ecosystems for financial products.